Reference no: EM132510866
Problem 1
The latest manufacturing equipment is purchased at a cost of $800,000. As a result, annual cash revenues are expected to increase by $345,000; annual cash expenses are expected to increase by $162,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $100,000. Assume the company is in the new 21% corporate tax bracket.
Question 1: Determine the accounting rate of return? (round to the nearest %)
Question 2: Determine the payback period?
Question 3: Determine the NPV assuming a minimum required rate of return of 8%?
Problem 2 (Ignore taxes for this problem)
Bullock Prosthetics is planning to buy 3-D printing machinery costing $380,000. This machinery's expected useful life is 5 years. They require a minimum rate of return of 8%, and have calculated the following data pertaining to the purchase and operation of this machinery:
Year Estimated Annual Cash Inflows Estimated Annual Cash Outflows Depreciation
1 90,000 15,000 60,000
2 150,000 45,000 60,000
3 230,000 95,000 60,000
4 270,000 110,000 60,000
5 300,000 125,000 60,000
Question 4: Determine Terra's payback period, accounting rate of return, and NPV for this investment?
Problem 3
Z Company is planning to purchase a system capable of deploying Artificial Intelligence for monitoring the company's transactions for accuracy and misuse. The expected cost of this system is $165,000, and it is expected to have a useful life of 6 years and an estimated salvage value of $26,500. The system is expected to produce cash savings of $57,000 per year in reduced labor costs and the cash operating costs to run this system are estimated to be $17,000 per year. Assuming Company X is in the new 21% tax bracket and has a minimum desired rate of return of 12% on this investment.
Question 5: Determine the:
(a) payback period, (b) ARR, and (c) NPV (Ignoring taxes), and
(a) payback period, (b) ARR, and (c) NPV (Assuming taxes).